The Euro’s Often Overlooked Weakness

A supporter of France’s President and candidate for re-election in 2012, Nicolas Sarkozy, waves French flags at Concorde Square in Paris on April 15.

By Katie Martin and Sarah Kent

When it comes to the euro’s exchange rate, investors and politicians alike may be guilty of upside-down thinking.

French President Nicolas Sarkozy has praised the benefits of a weaker euro repeatedly on the election campaign trail this week, pointing out that a burst of currency weakness could help to boost competitiveness by making exports appear cheaper abroad.

Many investors and market analysts have declared themselves to be baffled at the currency’s resilience in the face of a fresh wave of the region’s debt crisis, which this time is focusing on Spain.

But the Royal Bank of Canada drew focus to an opposing view Friday, saying in a note to clients that the idea that the euro should be weaker is a “myth”.

If it weren’t for the euro-zone debt crisis, the euro would now be trading around $1.62 against the dollar, the bank said. That is some 23% above its current level.

The euro was the worst performing of all the major currencies last year, and it is now “historically weak” against all currencies except the U.S. dollar, the bank’s analysts added — a reflection of investors’ disdain for bucks.

“There is plenty of scope for negative news from the euro zone, but the hurdle for euro weakness is high because the euro is already weak,” said Elsa Lignos and Adam Cole at the bank in London.

While a drop in the euro might boost exporters’ coffers, it could also bring its own disadvantages, particularly by boosting the cost of oil imports.

The price of oil futures in euros has tumbled since peaking at a record high of €95 a barrel in March, thanks largely to a decline in the price of oil generally. But it hasn’t fallen far. Friday, the rate is hovering at €90.

It isn’t hard to imagine supply concerns resurfacing–a development that would be exacerbated by a euro slide. And the pain is far from over for European consumers. While the price of oil on the wholesale market may have come down, this hasn’t yet been reflected at the pump.

The latest data from the European Commission show that the average price of diesel in the 27 member countries of the European Union was €1.52 a liter at the beginning of April, hardly changed from its peak this year of €1.53 a liter.

Comments (1 of 1)

A romance place for meeting over 50 mature local singles.
View more sexy and thoughtful mature people photo galleries
and videos there. I have met many rich and thoughtful single
friends there. -----《seniorloving，C^om 》-------hy654r